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Massive Justice Department Attack on Banks?

A monumentally-destructive Justice Department attack on banks may soon occur. Earlier, I wrote about how the Obama Justice Department is now forcing banks to make risky loans (in the name of “fair lending”), thus planting the seeds of a future financial crisis. In response, I received an e-mail from a former Justice Department lawyer who told me that the Justice Department’s HCE (Housing and Civil Enforcement Section, Civil Rights Division) is planning to block foreclosures across America (“across the whole [banking] sector"), even for irresponsible deadbeats who deserve to be foreclosed upon, citing racial disparities in foreclosure rates (which generally exist between black and white borrowers due to causes unrelated to intentional discrimination -- as the Supreme Court has observed, racial disparities often occur for reasons completely unrelated to racist decision-making, as it has noted in cases like Richmond v. J.A. Croson Co., Watson v. Fort Worth Bank & Trust,  and United States v. Armstrong).

He wrote that "there is a unit in the HCE section headed by a nut running this. They are next going to BLOCK foreclosures based on this theory. It is part of an administration wide-strategy to stop foreclosures.  I’ve heard from people who have participated in the internal meetings." He also asked that I not print his name yet, but allowed me to pass on the content of his e-mail.

While such a lawsuit seems insane -- it would destabilize the banks and wipe out the value of their loans at a time when the financial system and economy are extremely fragile -- there is no area where Democratic administrations are less willing to listen to reason than in the area of "civil rights." Bill Clinton was reasonable in many areas, such as free trade, but not in the context of civil-rights, where he let left-wing ideologues in the Office for Civil Rights and the Civil Rights Division run wild and push radical legal theories that were so extreme that federal judges imposed sanctions on them. Similarly, under the Obama administration, civil-rights officials have demanded that trucking companies hire alcoholic truck drivers, and that some employers hire felons (under the theory that minorities are more likely to have criminal records).

The highly-politicized Obama Justice Department is already suing banks that it perceives as not making enough loans to minorities, and forcing them both to award preferential loans to high-risk borrowers based on race, and to cough up money in “settlements,” some of which goes to left-wing “community” groups that are allied with the Obama administration. I earlier questioned the legal logic behind these lawsuits, noting that racial disparities are often not sufficient evidence of discrimination in many areas of the law. (Ironically, if the government itself were liable for "discrimination" based on unintentional racial disparities -- the way private employers sometimes are -- it would continually be sued, since, as the Supreme Court noted in Washington v. Davis,  it cannot be denied "that a whole range of tax, welfare, public service, regulatory, and licensing statutes" are "more burdensome to the poor and to the average black than to the more affluent white.")

The administration is also weighing a costly bailout for people whose mortgages are owned by two Government-Sponsored Enterprises, a bailout that could cost taxpayers tens of billions of dollars a year.